By Ben Levisohn

The analyst community came out in support of the Macau gaming stocks last week, calling the reports of a new crackdown overblown. Janney Capital Market’s Brian McGill has another piece of good news for Melco’s investors–the company gets more revenue from mass gaming than high-rollers. He writes:

For the Macau market overall, we think VIP growth will be flat for 2013 while mass market revenue will increase by 20% to 30%. For MPEL, the mass market growth is critical because the company earns approximately 2/3 of its luck-adjusted EBITDA from that segment. Additionally, mass margins approach 40%, which compares to the VIP business which has margins near 10%.

McGill also notes that Melco has an advantage over competitors, including Wynn Resorts (WYNN), Las Vergas Sands (LVS) and MGM Resorts International (MGM). Melco’s Studio City project should also be finished by mid-2015, ahead of its competitors competing properties.

McGill raised his target on Melco to $28, at which it would be worth 12 times 2013 EBITDA, still at a discount to Las Vegas Sands’ 14 times.

Melco has dropped 0.2% to $20.84 today.

UPDATE: I confused Melco’s City of Dreams and Studio City projects, and the post has been corrected to fix the error. Thanks to my readers for pointing out my mistake.

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There are 5 comments

FEBRUARY 11, 2013 11:31 A.M.

Johnny Lunchbucket wrote:

How does MPEL's "Dreams" with scheduled DOC in 2015 provide them with ANY advantage over LVS who now has 4 Brand new resorts known as "Cotai Center" opened in the last 9 months? City od Dreams will ride MPEKL's coattails, not be ahead of LVS in any way.

Get yours facts straight man! BTW, LVS has a huge advantage over all comers in the mass and high end mass markets... do some reading!

FEBRUARY 11, 2013 11:32 A.M.

blair wrote:

Way to report the news three days too late for anyone to profit from it.

FEBRUARY 11, 2013 11:35 A.M.

Johnny Lunchbucket wrote:

to be clear, I meant to say "MPEL is riding LVS' coattails [in the Cotai Center]..."

Also, have a look at the Cotai map -- Dreams is tucked away behind LVS CC prominent position on the world's newest, grandest, highest revenue and cash flow generating strip.

FEBRUARY 11, 2013 11:35 A.M.

Alan wrote:

Melco’s [City of Dreams] project on the Cotai strip should also be finished by mid-2015, ahead of its competitors competing properties. The above should be revised to read "Melco’s MAcau Studio City" project on the Cotai strip should also be finished by mid-2015

FEBRUARY 11, 2013 8:43 P.M.

spokanimal wrote:

The problem with Melco's studio city (not city of dreams, which is already built) is that it doesn't have a gaming license yet. Lawrence Ho says to anybody who'll listen that he'll get one...

... but we also thought Edmund Ho's promise that Sands would be permitted to build on cotai lots 7 and 8 was as good as his word too... and the Chui government took those lots AWAY from Sands.

Frankly, I think Sand's "parisian" resort has a good 25% chance of beating studio city to the market given that parisian is fully gazetted, fully licensed for gaming, and putting in pilings as we speak.

Good luck with your "speculation", Ben Levisohn... because speculation is what it is.

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